Invalid auction sale due to statutory violations, fraud, and collusion. Investigation ordered. Property returned to petitioners.

The court found that the bank's failure to serve mandatory notices under the SARFAESI Act, statutory violations in the auction process, evidence of fraud and collusion, and tampering with bid amounts rendered the auction sale invalid. The court ordered a high-level investigation into the fraudulent activities, imposed costs on the respondent bank, and directed the return of the property to the petitioners. The judgment emphasized the significance of following legal procedures and addressing fraudulent actions to uphold integrity in such proceedings.

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Issues Involved:
1. Non-service of notices under Sections 13(2) and 13(4) of the SARFAESI Act.
2. Statutory violations in the auction process.
3. Allegations of fraud and collusion.
4. Validity of the auction sale and rights of the bona fide purchaser.
5. Availability of alternative remedy.
6. Authorization of representatives and their actions.
7. Directions for investigation and relief.

Issue-wise Detailed Analysis:

1. Non-service of Notices under Sections 13(2) and 13(4) of the SARFAESI Act:
The petitioners contended that no notice under Sections 13(2) and 13(4) was served on the deceased S. Jayakumar or his legal representatives. The bank admitted in its counter affidavit that it was unable to locate S. Jayakumar and proceeded with the auction without serving the mandatory notices. The court highlighted the importance of serving notices as per Rule 3 of the Security Interest (Enforcement) Rules, 2002, which mandates service by registered post with acknowledgment due, speed post, courier, or electronic means. The bank failed to adhere to these requirements, rendering the notices invalid.

2. Statutory Violations in the Auction Process:
The court emphasized that the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002, are subordinate legislation with statutory force. The bank's failure to serve notices as required by law constituted a statutory violation. The court cited several precedents affirming that actions must be performed strictly as prescribed by law, and any deviation invalidates the proceedings.

3. Allegations of Fraud and Collusion:
The court found substantial evidence of fraud and collusion between the bank officials and the alleged authorized agent, P. Md. Thahir. The signatures on the authorization letter and mortgage deed differed significantly, suggesting forgery. The bank's actions, including allowing unauthorized individuals to deposit and withdraw money, raised serious doubts about the integrity of the process. The court ordered a high-level investigation by CB-CID to probe the fraudulent activities.

4. Validity of the Auction Sale and Rights of the Bona Fide Purchaser:
The auction process was marred by tampering with bid amounts to favor the fourth respondent. The court noted that the bids were altered to ensure the fourth respondent's bid was the highest, which indicated fraudulent intent. The court rejected the fourth respondent's claim of being a bona fide purchaser, stating that fraud vitiates all actions. The auction sale was declared invalid, and the fourth respondent was directed to return the property to the petitioners.

5. Availability of Alternative Remedy:
The court addressed the argument regarding the availability of an alternative remedy under Section 17 of the SARFAESI Act. It held that statutory violations, fraud, and violations of fundamental rights justified the petitioners' approach to the High Court under Article 226 of the Constitution. The court cited precedents affirming that alternative remedies do not bar the exercise of writ jurisdiction in cases of statutory and constitutional violations.

6. Authorization of Representatives and Their Actions:
The bank's reliance on an authorization letter allegedly issued by S. Jayakumar was found to be baseless, as Jayakumar had died before the letter was purportedly signed. The court noted discrepancies in the bank's claims about the authorization and the actions of P. Md. Thahir, suggesting collusion and fraud. The court directed an investigation into the authenticity of the authorization and the involvement of bank officials.

7. Directions for Investigation and Relief:
The court ordered a high-level investigation by CB-CID into the fraudulent activities of the bank officials, P. Md. Thahir, and the bidders. It directed the bank to hand over all relevant documents to the investigating agency. The court also imposed exemplary costs of Rs. 50,000 on the respondent bank, payable to the petitioners, and ordered the fourth respondent to return the property within 15 days.

Conclusion:
The judgment comprehensively addressed the issues of non-service of notices, statutory violations, fraud, and the validity of the auction sale. It highlighted the importance of adhering to legal procedures and the consequences of fraudulent actions. The court's directions for investigation and relief aimed to rectify the wrongs committed and ensure accountability.

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